WACC (Capital Costing Method)
As an analyst – you will need to determine what the market will bear when you sell x shares of preferred stock at y price/z yield.
As a buyer, you will look at the different options available in the market. So the actual yield of the stock will be determined by the market.
If you price to high, you won’t sell, if to low, you are sold out quickly. The preferred stock portion of the equation is only 1 of 3 WACC elements, and it doesn’t have to even be offered at all. You can have a company with just common stock, common and preferred, common and debt, debt and preferred etc…
So what considerations would you have as the M&A (mergers and acquisitions) analyst in preparing the offering for a preferred stock offering to the public?